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Music Downloads — VAT MOSS

What you need to know

Members are alerted to the changes to VAT rules effective from 1 January 2015 and are advised to contact their accountant when appropriate for further guidance.

Changes from 01 January 2015 

The place of supply of digital services changed with effect from 01 January 2015. Previously, B2C (Business to Consumer) supplies of digital services were subject to VAT where the supplier belonged. From 01 January 2015, B2C supplies of such services are treated as supplied where the consumer belongs. This only affects B2C supplies to customers in other EU member states and all B2B (Business to Business) supplies are unaffected. 

Practical Effect of the Change 

From 01 January 2015, all UK businesses, whether they are VAT registered or not, must account for VAT on digital supplies to B2C customers in other EU member states. There are no thresholds and the first supply to a B2C customer in any other EU member state will be subject to VAT at the local rate of that member state. 

How to account for VAT 

A UK business can either register for VAT in that member state (and potentially all 28) or, more realistically, it must register for the Union VAT MOSS scheme. MOSS (Mini One Stop Shop) allows a UK business to register once in the UK and then complete quarterly MOSS VAT Returns for all B2C transactions in other EU member states. The Returns are completed for calendar quarters and must be submitted to HMRC, together with the relevant payment, by the 20th of the following month. 

Identifying where the B2C customer receives the service 

For each transaction, the UK business should identify where the B2C customer belongs or has received the service, in order to establish where the supply took place. This may not be quite as onerous as it first appears as HMRC has stated that if the service is supplied: 

Through a telephone box, a telephone kiosk, a wi-fi hot spot, an internet café, a restaurant or a hotel lobby, the consumer location will be the place where the services are provided – for example, the member state where the phone box/kiosk etc. is located. On board transport travelling between different countries in the EU (for example, by boat or train), the consumer location will be the place of departure for the consumer’s journey. 

Through an individual consumer’s telephone landline, the consumer location will be the place where the landline is located. Through a mobile phone, the consumer location will be the country code of the SIM card. Through a decoder, the consumer location will be the postal address where the decoder is sent or installed. If B2C digital services are supplied in the above circumstances, then you are only required to retain evidence showing the relevant place (for example, the place where the decoder is installed) in order to establish the EU member state in which the supply took place. In any other circumstances, two pieces of commercial evidence will be required and examples include: 

The billing address of the customer; the IP address of the device used; location of the customer’s bank; any other commercially relevant information. 

Summary 

In summary, any UK business offering digital downloads via a website could be affected by the changes and should be aware of the implications. If you currently make B2C digital supplies joining the Union VAT MOSS scheme is the only viable option for your business.